How do you handle transactions where the agent is the buyer or seller?

The reason I am asking is because of a lawsuit filed against one of my agents by the seller of a property. The agent listed the property and later bought it.

In analyzing our E&O policy, I was struck by the breadth of the exclusion for agent-owner or purchased property.

I'm considering replacing our E&O policy with one that provides coverage in that case but it is very expensive.

That led me to pose my question: What do you do with respect to agent-owned property? And, specifically, how do you minimize the potential risk/exposure?

May I ask, what is the seller's theory of recovery? What is he claiming the agent did?

I'm in Cali and it's all about disclosure here. I can't address the insurance issue, I can tell you how I was trained to deal w/this situation.

In fact I just posted it on another thread:

Make sure the property is listed on the open market for a *reasonable* amount of time (the definition of *reasonable* will be determined by the market).

Of course we have to disclose in writing that we're agents.

If we're buying below fair market value, disclose that in writing as well, ie in my opinion, fair market value of subject property is . . . etc

I would also put in writing that seller is STRONGLY ENCOURAGED to obtain an appraisal from a qualfied professional at no cost to buyer.

If seller would not sign all of those disclosures, I wouldn't buy the property.

Not that all that disclosure will stop a greedy lawyer but it will slow them a bit.

Cali is litigation land and lawyers will file or at least threaten to file b/c you looked at the client the wrong way.

The case may be fully unwinnable but it can cost a mint to defend yourself.

The theory of the case is interesting.

The seller set the price of the property.

The listing agent approached the seller, asked what he would take, and then agreed to pay the agreed price.

The seller got upset when the agent then got an offer for a higher price on the property.

The complaint alleges that the offer should have gone to the seller (even though he had agreed to sell). I suspect it won't go far but it still must be defended out-of-pocket.

Yes I can see some real landmines there. I guess it could be argued that seller relied on agent's superior knowledge, skills, etc in setting the price.

Was it already in escrow when the offer came in?

I present offers that come in during escrow since I never really know for sure it's going to fly until funds are in. I have to make it clear to buyers' agents that it's in escrow but I can't recall refusing to take backups.

I think witholding the existence of the other offer is a problem.

Steve,
So how does this seller know that there was a higher offer on the property?
At what point during the closing between seller and agent/buyer was this offer received by the agent while it was still pending or after the sale?
A better timeline is needed on the situation.

This seller was one the agent had dealt with previously. He sets his own prices (frankly, he doesn't listen to anyone).

The agent/buyer made the offer and then had a buyer who inquired if the agent was aware of any properties that met a specific criteria. The agent mentioned he was buying this one.

The agent's buyer looked at the property and made an offer to the agent (ie. to buy his future interest). Of note, that offer did not close. The original seller learned of the offer becuase the agent's buyers had also made offers on other property he had for sale. The ended up talking.

Our state does have a statute that requires presentation of all offers. But, it has historically been interpreted as all offers to that particular seller, not offers to a third party.

Anyway, I hope this clarifies a bit.

I'm still looking for how brokers handle agent purchases and sales of owned property.

That's why we have a new Contract Addendum this year.
http://urlsnip.com/909982

My recommendation is to not buy your own listing. Without legal protection one is asking for problems.

This happened with one of the agents in a town where I used to work and the seller sued and won. The juxt of the ruling was that the agent had a fiduciary duty to the seller, as the listing agent, to disclose IN WRITING that he was purchasing the property for less then the current market value... or something to that affect. They said that wording had to be on the contract or in a separate addendum.

Disclose, disclose, disclose.

Here, the seller set the price.

The agent asked how much the seller wanted --- and gave him that.

And, the contract specified the agent was buying for purposes of reselling at a profit.

I think the disclosures did happen.

I would like to rechannel the discussion a bit. Does your E&O cover agent-involved transactions? If not, what do you do?

It is covered:
"Coverage for the sale or listing of your primary or principle residence provided the sale or listing is performed under the real estate license laws of Colorado. (Coverage does not include For Sale By Owner sales or listings)"
http://www.wugieo.com/Colorado/brochureCo-2007.htm

My E&O would cover in that situation. If not my attorney would counter sue to recover attorney fees and any damages possible as this is a frivolous lawsuit.
Take your attorney to lunch and discuss your options at length.

Pike's Peak: One thing to remember is that this was an investment transaction. Thus, it would be excluded under your policy.

Paul Oaks: That's exactly what we are considering now. The point I'm fixated on is that the agent's buyer never closed. Thus, under the seller's theory, there are no damages anyway.

That's the same statement I used when buying my owner occupied home, therefore the confusion.
However, you are correct.

I am also in California and have bought/sold several properties.

For me, it is all about getting the right forms signed. First, I put together something that clearly discloses I am a licensed real estate broker in my state. I then also get signed the appropriate Non-Agency Agreement (depending on whether or not I am acting as buyer or seller).

After reading this thread, I think it might also be smart to add something about the possibility of my actively searching for another buyer and that the other party can make no claim to any funds relating to a future sale to any interested parties being talked too during the escrow process.

But as someone else mentioned, just defending yourself from this kind of stupidity can be expensive. Just remember to counter-sue for fees when this moron loses. This kind of thing can act like blood in the water for lawsuits like this. My first broker won a thing like this way back in the early 90's and just let it go. Then he got more lawsuits in the following 2 years and could not figure out why all of a sudden these suits were coming along. He was winning them, but they still cost him money. So he started fighting back with counter-suits and found that the lawsuits stopped.

Apparently, many of the lawyers who love this kind of case will research the "Target" of the suit and if they see that the person has not fought back in the past, will be far more willing to start the action in the first place.

Don't know if this is common, but my old broker sure seemed to be living proof.

R

After going through this, I am considering revising our E&O to cover agent investment properties. The problem: Cost. I just got a quote that is more than 50% more than our current policy. I'm thinking about putting in place a seperate E&O fee that would only apply to these transactions.

Right now I only charge $15 a month for E&O. I would probably have to implement something like a $250 charge for each of these transactions. Sigh.

If that's what it cost, just have the investor agents pay, it's part of doing investment business.

I would pass on the increased expense to the agent in cases where they are buying their own properties.

R